Correlation Between IShares Core and SPDR Portfolio

Can any of the company-specific risk be diversified away by investing in both IShares Core and SPDR Portfolio at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Core and SPDR Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Core MSCI and SPDR Portfolio SP, you can compare the effects of market volatilities on IShares Core and SPDR Portfolio and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Core with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and SPDR Portfolio.

Diversification Opportunities for IShares Core and SPDR Portfolio

0.33

Correlation Coefficient

IShares Core  SPDR Portfolio

Weak diversification

The 3 months correlation between IShares and SPDR is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP and IShares Core is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Core MSCI are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of IShares Core i.e., IShares Core and SPDR Portfolio go up and down completely randomly.

Pair Corralation between IShares Core and SPDR Portfolio

Assuming the 90 days trading horizon IShares Core is expected to generate 2.87 times less return on investment than SPDR Portfolio. But when comparing it to its historical volatility, iShares Core MSCI is 1.09 times less risky than SPDR Portfolio. It trades about 0.07 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,857  in SPDR Portfolio SP on September 17, 2024 and sell it today you would earn a total of  543.00  from holding SPDR Portfolio SP or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

iShares Core MSCI  vs.  SPDR Portfolio SP

iShares Core MSCI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

SPDR Portfolio SP

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and SPDR Portfolio

The main advantage of trading using opposite IShares Core and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core position performs unexpectedly, SPDR Portfolio can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.

The idea behind iShares Core MSCI and SPDR Portfolio SP pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.